Foreign Retail Chains: Will they be able to deal with the Indian reality?

September 7, 2012

FDI in retail is one issue being dealt with since long. Our government has missed the chance once again. Indian retail giants are as large as foreign hypermarkets, but, do they do as well on the price and quality front?

Sucheta Dalal

With the entire monsoon session of parliament virtually washed out because of the Bharatiya Janata Party’s (BJP) protests, several key Bills that the United Progressive Alliance (UPA) hoped to push through, including 49% foreign direct investment (FDI) in aviation and multi-brand retail, are back in cold storage. This has triggered the inevitable intellectual debate over whether the entry of big retail, such as Wal+Mart, would spell the demise of mom & pop stores. The arguments were also predictable. Small retailers understand local needs, rituals and customs and can provide better service, extend credit and provide home delivery.

Ironically, this debate belongs to the 1990s, because many small stores are happy to close down or rent out their shops and work with large retailers. Let’s not forget that large Indian retailers, such as Reliance, Birla, Future group and Spencers as well as foreign hypermarkets, have been in business for a decade without raising a political storm. So why is there so much of angst about FDI in multi-brand retail?

One reason could be that because Indian retailers are still not delivering either on price or quality and now that the thrill of glitzy shopping malls is on the wane, the reality of soaring costs, high pilferage, inability to improve supply-chains and the problem of unmanageable employees is beginning to sink in. Employees chattering away in little groups and ignoring customers is fairly routine. At Reliance’s Sahakari Bhandar in Mumbai, employees think nothing of having shrieking matches about closed checkout counters, while customers wait impatiently in long queues.

At the bigger chains, junior shop assistants are barely trained and, contrary to their rousing advertisements, rarely capable of assisting a customer in finding what she needs. A researcher who works with the Future group finally explained the mystery of poor employee discipline. She said, unionised employees backed by a powerful political party blackmails the management by threatening to strike when it is likely to damage business the most, i.e., on weekends and before major holidays.

This is an Indian reality that big foreign retailers, despite the financial muscle and cost advantage, will have to learn to deal with along with harassment by a multitude of corrupt government departments. Failure to understand it will lead to the sort of turmoil that Suzuki is dealing with, ever since the Japanese took charge of management.